The Role of Central Bank of Nigeria in Exchange Rate Stabilization
Tochukwu Odoh
Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Nigeria.
Kelechi C. Nnamdi *
Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Nigeria and Lagos Business School, Nigeria.
Anthony Onah
Central Bank of Nigeria, Abuja, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
The study X-rays the role of Central Bank of Nigeria (CBN) in exchange rate stability in Nigeria, using quarterly time series data. The study adopts GARCH family models to decipher the potency of CBN’s monetary policy in exchange rate stability in Nigeria. Anchor interest rate, official exchange rate, and money supply were incorporated into the variance equation to determine their exact impact on the volatility variable (conditional variance). Empirical results show that Anchor interest rate, official exchange rate, and money supply are key in exchange rate stability in Nigeria. The study also finds that despite CBN’s official intervention, exchange rate instability in Nigeria persists overtime. It concludes that Central Bank of Nigeria has a major role to play in managing exchange rate volatility in Nigeria especially when it uses the aforementioned monetary policy tools.
Keywords: Monetary policy, exchange rate fluctuation, Central Bank of Nigeria, GARCH model, foreign exchange market